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Moving & Taxes | How Do You Report It to the IRS?

The following discussions explain how to report your Moving and Relocation Expenses and any reimbursements or allowances you received for your move. Use Form 3903 to report your Moving and Relocation Expenses. Use a separate Form 3903 for each qualified move.

Where to deduct. Deduct your Moving and Relocation Expenses on line 26 of Form 1040. The amount of Moving and Relocation Expenses you can deduct is shown on line 5 of Form 3903.

You cannot deduct Moving and Relocation Expenses on Form 1040EZ or Form 1040A.

Reimbursements

This section explains what to do when you receive a reimbursement (including advances and allowances) for any of your Moving and Relocation Expenses discussed in this publication.

If you received a reimbursement for your allowable Moving and Relocation Expenses, how you report this amount and your expenses depends on whether the reimbursement was paid to you under an accountable plan or a nonaccountable plan. These plans are discussed later. For a quick overview of how to report the reimbursement, see Table 2.

Your employer should tell you what method of reimbursement is used and what records they require.

Employers. If you are an employer and you reimburse employee Moving and Relocation Expenses, how you treat this reimbursement on your employee's Form W-2 depends in part on whether you have an accountable plan. Reimbursements treated as paid under an accountable plan are reported in box 13 with code P. For more information, see Publication 535, Business Expenses.

Reimbursements treated as paid under nonaccountable plans, as explained later, are reported as pay. See Publication 15, Circular E, Employer's Tax Guide, for information on employee pay.

Accountable plans. To be an accountable plan, your employer's reimbursement arrangement must require you to meet all three of the following rules.

1. Your expenses must be of the type for which a deduction would be allowed had you paid them yourself. The reasonable expenses of moving your possessions from your former home to your new home, and traveling from your former home to your new home are two examples.

2. You must adequately account to your employer for these expenses within a reasonable period of time.

3. You must return any excess reimbursement or allowance within a reasonable period of time.

An excess reimbursement includes any amount you are paid or allowed that is more than the Moving and Relocation Expenses that you adequately accounted for to your employer. See Returning excess reimbursements, later, for information on how to handle these excess amounts.

Adequate accounting. You adequately account by giving your employer documentary evidence of your Moving and Relocation Expenses, along with a statement of expense, an account book, a diary, or a similar record in which you entered each expense at or near the time you had it. Documentary evidence includes receipts, canceled checks, and bills.

Returning excess reimbursements. You must be required to return any excess reimbursement for your Moving and Relocation Expenses to the person paying the reimbursement. Excess reimbursement includes any amount for which you did not adequately account within a reasonable period of time. For example, if you received an advance and you did not spend all the money on deductible Moving and Relocation Expenses, or you do not have proof of all your expenses, you have an excess reimbursement.

Reasonable period of time. What constitutes a "reasonable period of time" depends on the facts and circumstances of your situation. However, regardless of the facts and circumstances of your situation, actions that take place within the time specified in the following list will be treated as taking place within a reasonable period of time.

1. You receive an advance within 30 days of the time you have an expense.

2. You adequately account for your expenses within 60 days after they were paid or incurred.

3. You return any excess reimbursement within 120 days after the expense was paid or incurred.

4. You are given a periodic statement (at least quarterly) that asks you to either return or adequately account for outstanding advances and you comply within 120 days of the statement.

Employee meets accountable plan rules. If for all reimbursements you meet the three rules for an accountable plan, your employer should not include any reimbursements of allowable expenses in your income in box 1 of your Form W-2. Instead, your employer should include the reimbursements in box 13 of your Form W-2.

Table 2. Reporting Employee Moving and Relocation Expenses and Reimbursements

Example. You lived in Boston and accepted a job in Atlanta. Under an accountable plan, your employer reimbursed you for your actual traveling expenses from Boston to Atlanta and the cost of moving your furniture to Atlanta.

Your employer will include the reimbursement in box 13 of your Form W-2. If your allowable expenses are more than your reimbursement, show all of your expenses on lines 1 and 2 of Form 3903. Include the reimbursement on line 4 of Form 3903.

Employee does not meet accountable plan rules. You may be reimbursed by your employer, but for part of your expenses you may not meet all three rules.

If your deductible expenses are reimbursed under an otherwise accountable plan but you do not return, within a reasonable period, any reimbursement of expenses for which you did not adequately account, then only the amount for which you did adequately account is considered as paid under an accountable plan. The remaining expenses are treated as having been reimbursed under a nonaccountable plan (discussed later).

Reimbursement of nondeductible expenses. You may be reimbursed by your employer for Moving and Relocation Expenses, some of which are deductible expenses and some of which are not deductible. The reimbursements received for the nondeductible expenses are treated as paid under a nonaccountable plan.

Nonaccountable plans. A nonaccountable plan is a reimbursement arrangement that does not meet the three rules listed earlier under Accountable plans.

In addition, the following payments will be treated as paid under a nonaccountable plan:

1. Excess reimbursements you fail to return to your employer, and

2. Reimbursements of nondeductible expenses. See Reimbursement of nondeductible expenses, earlier.

If an arrangement pays for your Moving and Relocation Expenses by reducing your wages, salary, or other pay, the amount of the reduction will be treated as a payment made under a nonaccountable plan. This is because you are entitled to receive the full amount of your pay regardless of whether you had any Moving and Relocation Expenses.

If you are not sure if the relocation expense reimbursement arrangement is an accountable or nonaccountable plan, ask your employer.

Your employer will combine the amount of any reimbursement paid to you under a nonaccountable plan with your wages, salary, or other pay. Your employer will report the total in box 1 of your Form W-2.

Example. To get you to work in another city, your new employer reimburses you under an accountable plan for the $7,500 loss on the sale of your home. Since this is a reimbursement of a nondeductible expense, it is treated as paid under a nonaccountable plan and must be included as pay on your Form W-2.

Completing Form 3903. Complete the Distance Test Worksheet in the instructions for Form 3903 to see whether you meet the distance test. If so, complete lines 1-3 using your actual expenses (except, if you use your own car, you can figure expenses based on a mileage rate of 10 cents a mile, instead of on actual amounts for gas and oil). Enter on line 4 the total amount of your relocation expense reimbursement that was excluded from your wages. This excluded amount should be identified with code P in box 13 of Form W-2.

If line 3 is more than line 4, subtract line 4 from line 3 and enter the result on line 5 and on Form 1040, line 26. This is your relocation expense deduction. If line 3 is equal to or less than line 4, enter zero on line 5 (you have no relocation expense deduction). Subtract line 3 from line 4 and, if the result is more than zero, include it on Form 1040, line 7.

Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970. Do not include in income any relocation expense payment you received under the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970. These payments are made to persons displaced from their homes, businesses, or farms by federal projects.

When To Deduct Expenses

If you were not reimbursed, deduct your allowable Moving and Relocation Expenses either in the year you had them or in the year you paid them.

Example. In December 1999, your employer transferred you to another city in the United States, where you still work. You are single and were not reimbursed for your Moving and Relocation Expenses. In 1999 you paid for moving your furniture. You deducted these expenses in 1999. In January 2000, you paid for travel to the new city. You can deduct these additional expenses in 2000.

Reimbursed expenses. If you are reimbursed for your expenses, you may be able to deduct your allowable expenses either in the year you had them or paid them. If you use the cash method of accounting, you can choose to deduct the expenses in the year you are reimbursed even though you paid the expenses in a different year. See Choosing when to deduct, later.

If you are reimbursed for your expenses in a year after you paid the expenses, you may want to delay taking the deduction until the year you receive the reimbursement. If you do not choose to delay your deduction until the year you are reimbursed, you must include the reimbursement in your income, even if you are reimbursed under an accountable plan. See Reimbursements excluded from income and its discussion, Expenses deducted in earlier year, under Tax Withholding and Estimated Tax, earlier.

Choosing when to deduct. If you use the cash method of accounting, which is used by most individuals, you can choose to deduct Moving and Relocation Expenses in the year your employer reimburses you if:

1. You paid the expenses in a year before the year of reimbursement, or

2. You paid the expenses in the year immediately after the year of reimbursement but by the due date, including extensions, for filing your return for the reimbursement year.

How to make the choice. You can choose to deduct Moving and Relocation Expenses in the year you received reimbursement by taking the deduction on your return, or amended return, for that year.

You cannot deduct any Moving and Relocation Expenses for which you received a reimbursement that was excluded from your income. Reimbursements excluded from, or included in, income are discussed under Tax Withholding and Estimated Tax, earlier.

More information on Moving and Your Taxes from the IRS

• Introduction to Moving and Relocation Expenses and Taxes

• Which Moving and Relocation Expenses are deductible?

• Which Moving and Relocation Expenses are NOT deductible?

• Examples of Tax-Deductions

• How do you report it?

• Visit the IRS website to download the necessary forms

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